14th Mar 2007 07:03
Stagecoach Group PLC14 March 2007 Stagecoach Group plc14 March 2007 Proposed return of value of approximately £700 million to Shareholders Update on current trading and prospects Highlights - Current trading at upper end of our expectations- Prospects for financial year to 30 April 2008 ahead of our previous expectations- Proposed one-off Return of Value of approximately £700 million to Shareholders (equivalent to approximately 40% of current market capitalisation)- Return equivalent to 63 pence per Existing Ordinary Share- Return to be effected by B Share/C Share structure- Existing Ordinary Shares to be consolidated into New Ordinary Shares- Return of Value is conditional upon Shareholder approval- Return of Value is intended to establish a more appropriate and efficient capital structure 1. Introduction Stagecoach Group plc ("Stagecoach" or "the Group") is pleased to provide anupdate on its current trading and prospects, and also its proposals for a returnof value to Shareholders. 2. Current trading and prospects The overall trading of the Group remains strong and earnings per share (beforeintangible asset expenses and exceptional items) for the year ending 30 April2007 are now anticipated to be at the upper end of our expectations. The prospects for the Group for the year ending 30 April 2008 have furtherimproved. This improvement reflects continuing strong revenue growth, asustained reduction in fuel prices, the benefit of significant additionalcontributions to pension schemes and the proposed Return of Value announcedtoday. The improved prospects are most significant in our UK Bus division and atour joint venture, Virgin Rail Group. The Group's consolidated net funds (i.e. the excess of cash over grossborrowings determined in accordance with UK GAAP) are expected to be between£130 million and £150 million as at 30 April 2007, of which approximately £90million to £100 million of net funds are expected to be held within railfranchises. A summary of trading and prospects at the Group's main divisions is as follows: (a) UK Bus In the year to 30 April 2007, we have seen excellent revenue growth in the UKBus division where the trends seen in the first half of the year have continued.This includes one-off growth from the new concessionary fare schemes introducedin Scotland and England from April 2006. Accordingly, the rate of revenue growthin the year ending 30 April 2008 is expected to reduce somewhat but weanticipate that the underlying positive trend will continue. The continued revenue growth, integration of acquired businesses, reduced fuelprices and returns on additional pension contributions should result in furtherstrong progress by UK Bus for the year ending 30 April 2008. (b) North America Bus The Group's bus and coach operations in North America are also benefiting fromgood revenue growth and an easing of fuel prices. The claims environment in theUS remains challenging but subject to effectively controlling claims costs,further growth is anticipated in the years ending 30 April 2007 and 30 April2008. (c) Rail South West Trains, along with the majority of the UK passenger rail industry isexperiencing better than anticipated revenue growth. While this has been partlyoffset by cost increases, we are confident of meeting our profit expectationsfor the new ten-year South West Trains' franchise that commenced on 4 February2007. (d) Virgin Rail Group Virgin Rail Group, in which the Group holds a 49% interest, continues toexperience good financial results. The re-negotiated West Coast rail franchiseis benefiting from strong revenue growth and increasing market share at theexpense of the domestic airline market in particular, which has resulted in animproved outlook for the year ending 30 April 2008. 3. Proposed Return of Value On 6 December 2006, the Group announced its intention, subject to Shareholderapproval, to return value of no less than £400 million to Shareholders. Sincethe date of this announcement the Directors have further considered theCompany's capital structure and have decided that subject to regulatoryapproval, for the reasons set out in the "Background to the Return of Value"section below, to return approximately £700 million to Shareholders. Under the Return of Value proposals, Shareholders will receive 63 pence in cashin respect of each Existing Ordinary Share in issue at the relevant record timeby a B Share/ C Share structure and a proportional consolidation of theCompany's Existing Ordinary Shares. This method of returning value toShareholders is similar to that used by the Group to return value toShareholders in 2004 and has been chosen because it allows all Shareholders tobe treated equally pro-rata to the size of their existing shareholdings inStagecoach, and gives all Shareholders (with the exception of OverseasShareholders) choices as to when, and in what form, they receive their proceedsfrom the Return of Value. In addition, it gives clarity as to the quantum andthe financial effects of the Return of Value when compared to certainalternative methods of returning value. The Directors of Stagecoach expect a circular ("the Circular") to be sent toShareholders within the next two weeks, which will set out details of the Returnof Value and explain why the Directors of Stagecoach consider the Return ofValue to be in the best interests of Stagecoach and Shareholders as a whole. The Return of Value (together with certain other matters, including proposedamendments to the Articles of Association) requires the approval ofShareholders. These approvals will be sought at an Extraordinary General Meetingof Stagecoach. Shareholders should read the whole of the Circular and not just rely on thesummarised information set out in this announcement. As previously indicated, the Group expects to complete the Return of Value by 30June 2007. 4. Background to the Return of Value Stagecoach is a leading international transportation group with a strongportfolio of cash generative businesses. The Group's strategy is now firmlydirected towards delivering value from organic growth in revenues and profitsfrom bus and rail businesses in the UK and North America, complementaryacquisitions and evaluating new rail franchise opportunities. Following the Group's disposals of its New Zealand and London bus operations inNovember 2005 and August 2006 respectively, and the Group's continued strongcash generation, net debt has been eliminated with net funds at 31 October 2006of £140.9 million compared to net debt of £135.9 million at 30 April 2006. Thisled the Board, in December 2006, to announce that it would be reviewing itscapital structure and that it intended to return not less than £400 million toShareholders. Since then, there has been a thorough review of the Group'sposition and prospects during which time the West Coast mainline rail franchise(in which the Group has a 49 per cent. interest via Virgin Rail Group) has beenrenegotiated, further fuel hedging has been put in place and continued strongrevenue growth has been experienced in the Group's UK Bus and Rail divisions.These factors, coupled with the ability of the Group to borrow at acceptablerates, have led the Board to conclude that Stagecoach should returnapproximately £700 million to Shareholders. This equates to 63 pence perExisting Ordinary Share in issue. The aim of the Return of Value is to establisha more appropriate and efficient capital structure for the Group and therebyreduce its overall cost of capital and generate further Shareholder value. Inreaching its decision that this was an appropriate amount to return toShareholders, the Board has taken full account of the Group's development plansand access to funding. The Group expects to fund the Return of Value from its available surplus cashand bank facilities. 5. Pension scheme funding The Group has also reached agreement with the trustees of the Stagecoach GroupPension Scheme that if the Return of Value is approved by Shareholders, theGroup will make special cash contributions of £50 million to the scheme no laterthan 30 June 2007, of which £20 million is expected to be made prior to 30 April2007. In addition, the Group's ongoing employer contributions to pension schemesare expected to exceed the net pensions charge to the Group's income statementin the short to medium term. 6. Share Capital Consolidation As part of the Return of Value, Existing Ordinary Shares will be replaced by NewOrdinary Shares in order to reduce the number of Existing Ordinary Shares inissue to reflect the Return of Value. The Share Capital Consolidation is intended to: - Make the share price directly comparable before and after the Return of Value;- Maintain the comparability of future earnings and dividend per share amounts with previously reported earnings per share amounts;- Maintain the intrinsic value of awards that have been under Stagecoach Share Schemes, such as the grant of share options to employees. The New Ordinary Shares will have in all material respects the same rights asthe Existing Ordinary Shares. 7. Dividend policy It is not envisaged that the Return of Value will affect the future level ofdividends per Ordinary Share although the reduction in the number of OrdinaryShares in issue as a result of the Share Capital Consolidation will reduce thenumber of Ordinary Shares ranking for dividend. The Board intends to continue topursue a progressive dividend policy. 8. Further details The Group expects to announce further details of the mechanics of the Return ofValue, the expected timetable and the choices available to Shareholders withinthe next two weeks. The Group also expects to post the Circular to Shareholderswithin the next two weeks. A short slide presentation will be available today on the Group's website,www.stagecoachgroup.com The Group will be having discussions and meetings with analysts prior to thecommencement on 30 April 2007 of its year-end close period. Enquiries to:Martin Griffiths, Stagecoach Group - 01738 442111 John Kiely, Smithfield - 020 7360 4900Nick Bowers, Credit Suisse- 020 7888 8888Chris Byrne, Credit Suisse- 020 7888 8888 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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